TaxTMI 
TaxTMI 
2014 (1) TMI 1683
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....ed in upholding the imposition of penalty of Rs. 4,15,440 under s. 271D of the Act which is arbitrary and unjustified. 3. That the learned CIT(A) has erred in law as well as on facts in holding that the provisions of s. 271D are attracted in respect of share application money received from directors which is illegal, arbitrary and unjustified. 4. That in any case, the learned CIT(A) has failed to appreciate the reasonable cause pleaded before him in the correct perspective and as such the order passed by him is arbitrary and unjustified." 3. Out of the above, ground No. 1 was not pressed and, therefore, the same is dismissed as not pressed. 4. Ground Nos. 2, 3 and 4 : After hearing both the parties, we find that ITO, Ward No. 1, Patiala intimated the Jt. CIT, Patiala Range that assessee has accepted share application money in cash from Shri Kamalpreet Singh proprietor M/s Saran Enterprises, Patiala, Shri Balwinder Singh, proprietor M/s M.P. Traders, Patiala and Smt. Pritam Kaur, proprietor M/s Jaimal Sons Enterprises. It was further intimated that this is in violation of provisions of s. 269SS particularly in view of the decision of....
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.... 5. The Jt. CIT examined these submissions and did not find much force in the same. He observed that there was explanation provided for receipt in s. 269SS and the nature of transaction envisaged in a different statute cannot be imported to the nature of transaction envisaged in the IT Act. He further observed that in case of Bhalotia Engineering Works (P) Ltd. (supra) also, the explanation was that the share application money would not constitute a deposit was rejected by the Hon'ble Jharkhand High Court. He also observed that money paid to a company along with an application for shares is also a deposit of money in the company which is repayable by such company after the period for allotment of shares comes to an end or decision is taken regarding allotment of shares. Thereafter, the amount is repayable to the person who paid money even without demand in that behalf. In the case before him the assessee has not allotted shares even after five years against the share applications received by it and later on started returning the money in specie which clearly establishes that such share application money was in the nature of deposit. It was also observed that perusal of the b....
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.... It was observed that initially amount received by the assessee was credited to the current account of the director, therefore, it was impossible to comprehend that public limited company would be raising capital on day-to-day basis. According to him, if the amounts were received towards share application money then the same would not have been credited to a current account of a principal director or a credit should have gone to share application money account, it is only at the end of the year that money has been transferred to share application money account. Therefore, according to him, the cash received on various dates was not on account of share application money. According to him, even if it was presumed that journal entry for transferring the money to "share application money" account on 31st March was not an after thought, even then the applicability of s. 269SS has to be seen at the point of time when money is actually received. It was pointed out that it was not in the shape of share application money. He further observed that in case of Kamalpreet Singh, the total credit standing in his account was Rs. 76,07,169. The face value of the share of the appellant company was ....
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....andH) has taken a similar view. In any case, when different views have been taken by different High Courts, then the decision which is favourable to the assessee has to be adopted and for this proposition he relied on the decision of Hon'ble Supreme Court in the case of CIT vs. Vegetable Products Ltd. 1973 CTR (SC) 177 : (1973) 88 ITR 192 (SC) and CIT vs. Podar Cement (P) Ltd. (1997) 141 CTR (SC) 67 : (1997) 226 ITR 625 (SC). 9. The learned counsel for the assessee also submitted that in any case there was a reasonable cause for accepting the cash from directors. The assessee company was in the business of construction of the hotel. The assessee company had applied for various loans but the loans were not sanctioned and, therefore, the directors were left with no option but to contribute money towards construction of such hotel. Initially, money was received by the company in the current account and since the loans were not forthcoming it was decided to transfer the credit balance lying in the current account at the end of the year to share application account. According to him, this was a reasonable cause and in this regard he relied on the decision of Hon'ble Punjab an....
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.... application money has exceeded the authorized capital. The Jt. CIT has also observed that money has been transferred from the proprietary concern of the individual to the company e.g. in case of Shri Kamalpreet Singh the proprietor of Saran Enterprises from where money has been transferred. He submitted that proprietary concern is owned by the individual and there is no bar in withdrawing the money from the proprietary concern for the purpose of making share application with the company. Further, there is observation that shares have been allotted only after five years is of no consequence because there is no time-limit fixed for allotment of shares from the date of receipt of share application money. Further, in the case of Shri Kamalpreet Singh, shares were allotted in financial year 2002-03 also which becomes clear from the copy of account. He also submitted that Jt. CIT has also observed that when proprietary concern were also having bank account why money was not transferred through cheques is of no consequence because money was transferred for the construction of hotel as and when the same was required and most of the time money was required for payment of labour and some ot....
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....; (a) Government; (b) any banking company, post office savings bank or co-operative bank; (c) any corporation established by a Central, State or Provincial Act; (d) any Government company as defined in s. 617 of the Companies Act, 1956 (1 of 1956); (e) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette:- Provided further that the provisions of this section shall not apply to any loan or deposit where the person from whom the loan or deposit is taken or accepted and the person by whom th....
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....e is able to show a reasonable cause then the penalty under s. 271D may not be leviable. 15. Now the first question arises whether the assessee has contravened the provisions of s. 269SS. As observed earlier, no definition has been given clearly for the expression "loan or deposit". In the normal business world, a loan connotes a transaction in which borrower approaches the lender for a certain sum for a fixed period on the terms and conditions which may be agreed between borrower and lender which would include the rate of interest, tenure of the loan and other conditions regarding security etc. Similarly, the word 'deposit' would connote a transaction in which the depositor gives to another person generally a bank or some other person a deposit of his belongings which may be money also on certain terms and conditions e.g. in case of a bank the depositor would deposit the money to be refunded after certain period along with predefined interest. Deposits can also be made by person for assuring the other of the performance of a contract e.g. in case of bailment contracts. The Hon'ble Jharkhand High Court in the case of Bhalotia Engineering Works (P) Ltd. (supra) has op....
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....ce of a reasonable cause. No doubt a reasonable cause has to be established by the assessee. The rationale behind the provisions of ss. 269SS and 269T is to prevent tax evasion, i.e., the laundering of concealed income by parties in the guise of cash loans or deposits in or outside the accounts. The provisions of ss. 269SS and 269T therefore have application only in a limited way in respect of deposits or loans. When it is neither deposit nor loan, the provisions' of ss. 269SS and 269T have no application at all. Even if there is repayment by cash it could not be said to attract the levy of penalty automatically, under s. 271E of the Act. The advances of share application money or repayments of such advances have not flowed from any undisclosed income of the assessee or the concerned persons. It is also seen from the records that the assessee had not paid any interest at all on any of the advances repaid after quite some time. If the intention was to receive them as loans or deposits, then certainly the lenders would not have made the advances gratuitously. It is also a factual finding given by the authorities below that the assessee was not called upon to explain the default u....
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....ich are as under:- "We heard the arguments of learned counsel for the Revenue. We have perused the materials available in record. Admittedly Mr. S.V.S. Manian was one of the directors. Therefore the order of the lower authority clearly shows that there was a running current account in the books of account of the assessee in the name of Mr. S.V.S. Manian. Mr. S.V. S. Manian used to pay the money in the current account and used to withdraw the money also from the current account. The Revenue should establish that what was received by the assessee is a loan or deposit within the meaning of s. 269SS. The deposit and the withdrawal of the money from the current account could not be considered as a loan or advance. Further it was also found that the assessee filed a letter dt. 29th Sept., 1997, and in that letter he explained that the amount received from Mr. S.V.S. Manian had been shown as unsecured loan from directors' in the balance sheet. As per the Companies Act, under the Companies (Acceptance of Deposits) Rules, 1975, under r. 2(b)(ix), deposit does not include any amount received from a director or a shareholder of a private limited company. Therefore th....
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.... at para 16:- "As pointed out earlier, there is no doubt about the genuineness of the transactions which have been fully accepted in the assessment made for the year under consideration. Even if there is any ignorance, which resulted in the infraction of law, the default is technical and venial which did not prejudice the interests of the Revenue as no tax avoidance or tax evasion was involved. To my mind, bona fide belief coupled with the genuineness of the transactions would constitute reasonable cause under s. 273B for not invoking the provisions of s. 271E of the Act. The impugned order of penalty is cancelled. The findings of the CIT(A) have been confirmed in appeal by the Tribunal. Therefore, the findings recorded by the CIT(A) and the Tribunal that the assessee had shown reasonable cause for the failure to comply with the provisions of s. 269T of the Act is a finding of fact based on appreciation of material on record. It does not give rise to any question of law, much less substantial question of law. Accordingly, the appeal is dismissed. The Tribunal was right in recording its conclusion that a 'reasonab....
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.... present case, the assessee has received some cash payments which have been initially credited to the current account of various directors and later on transferred to the share application money account. The relevant copies of account read as under:- Eqbal Inn and Hotels Ltd. SST Nagar, Rajpura Road, Patiala Share Application Money A/c Ledger Account -ast April, 2001 to 31st March. 2002 Date Particulars Vch Type Vch No. Debit Credit 31-3-2002 Dr. (as per details) Kamalpreet Singh Sethi's A/c Dr. Saran Kaur's A/c 48,71,57247,560 Journal 49,19,132 Cr. closing balance 49,19,132 49,19,132 49,19,132 49,19,132 1st April, 2002 to 31st March. 2003 1-4-2002 Dr. Opening balance 49,19,132 31-3-2003 Dr. Kamal Preet Singh Sethi's A/c Journal 76,07,169 Cr. paid up Share capital A/c Trfd. Journal 4,93,000 4,93,000 1,25,26,30....
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....ening balance 2,16,94,774 31-3-2008 Dr. Balwinder Singh Reed. from Balwinder Singh-Director Journal 14,50,000 Dr. Kamalpreet Singh Reed. from Kamalpreet Singh-Director Journal 23,00,000 2,54,44,774 Cr. Closing balance 2,54,44,774 2,54,44,774 2,54,44,774 1st April, 2008 to 31st March, 2009 1-4-2008 Dr. Opening balance 2,54,44,774 20-4-2008 Dr. Cash Receipt 5,00,000 Cash received from Saran Enterprises for Eqbal Inn and Hotels Ltd. 28-4-2008 Dr. Cash Receipt 5,00,000 Cash received from Saran Enterprises for Eqbal Inn and Hotels Ltd. 14-5-2008 Dr. Cash Receipt 4.00,000 Cash received from Saran Enterprises For Eqbal Inn and Hotels Ltd. ....
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....bsp; 2,05,28,308 3,54,76,024 3,54,76,024 1st April, 2009 to 31st March, 2010 1-4-2009 Dr. Opening Balance 3.54.76,024 31-3-2010 Cr. Kamalpreet Singh Journal 733 1,49,47,716 1,49,47,716 3,54,76,024 Cr. Closing Balance 2,05,28,308 3,54,76,024 3,54,76,024 Kamalpreet Singh Sethi's A/c Ledger account 1st April, 2001 to 31st March, 2002 Date Particulars Vch Type Vch No. Debit Credit 21-11-2001 Dr. Improvement Trust, Patiala pay order by given to Imp. Trust from saving A/c No. 39934 by Ch. No. 149101 of S. Kamalpreet Singh Sethi as down payment Journal 20,00,000 22-11-2001 Dr. Improvement Trust, Patiala Che. No. 149104 given to Imp. trust from saving A/c No. 39934 of S. Kamalpreet Singh Sethi upto 1/4 Payment Journal 28,71,572 31-3-2002 Cr share application money A/c amount paid by New Directors trfd. to sha....
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....A A/c NO. 37512 Ch. No. 866104 reed, from Mr. Kamalpreet Singh Sethi(Dir.) from his saving A/c No. 39934 of OBC, The Mall, Pta Journal 7,00,000 20-5-2004 Dr. SBOP, The Mall, PTA A/c NO. 37512 Ch. No. 866066 reed, from Mr. Kamalpreet Singh Sethi (Dir.) From his saving A/c No. 39934 of OBC, The Mall, Pta. Journal 5,62,930 27-11-2004 Dr. Architects Combine, New Delhi D.D No. 150438 of Punjab and Sind Bank issued from Saran Ent. as advance Journal 2,00,000 31-3-2005 Cr. Share application money A/c Journal 14,62,930 14,62,930 14,62,930 1st April, 2004 to 31st March, 2005 1-10-2004 Dr Cash Receipt 3,00,000 Cash received from Saran Enterprises 1-11-2004 Dr. Cash Cash received from Saran Enterprises Receipt 4.00.000 5 12-2004 Dr. Cash Cash received from Saran Enterprises Receipt 5,00,000 2-2005 Dr. Cash Cash received from Kamalpreet Singh....
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....nterprises Pta For Eqbal Inn and Hotels Ltd. Receipt 1.50,000 5-6-2006 Dr. Cash Cash received from Saran Enterprises Pta For Eqbal Inn and Hotels Ltd. Receipt 4,00,000 8-6-2006 Dr. Cash Cash received from Saran Enterprises Pta For Eqbal Inn and Hotels Ltd. Receipt 3,00,000 22-6-2006 Dr. Cash Cash received from Saran Enterprises Pta For Eqbal Inn and Hotels Ltd. Receipt 3,00,000 4-7-2006 Dr. Cash Cash received from Saran Enterprises Pta For Eqbal Inn and Hotels Ltd. Receipt 3,00,000 15-7-2006 Dr. Cash Cash received from Saran Enterprises Receipt 1,00,000 17-7-2006 Dr. Cash Cash received from Saran Enterprises Pta For Eqbal Inn and Hotels Ltd. Receipt 3,00,000 28-7-2006 Dr. Cash Cash received from Saran Enterprises Pta For Eqbal Inn and Hotels Ltd. Receipt 3,00,000 30-7-2006 Dr. Cash Cash received from Saran Enterprises Pta For Eqbal Inn and Hotels Ltd. Receipt 3,00,000 3-8-2006 Dr. Cash Cash received....
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....; 2,00,000 16-4-2007 Dr. Cash Cash received from Saran Enterprises For Eqbal Inn and Hotels Ltd. Receipt 2,00,000 5-5-2007 Dr. Cash Cash received from Saran Enterprises For Eqbal Inn and Hotels Ltd. Receipt 2,00,000 7-5-2007 Dr. Cash Cash received from Saran Enterprises For Eqbal Inn and Hotels Ltd. Receipt 3,00,000 3-6-2007 Dr. Cash Cash received from Saran Enterprises For Eqbal Inn and Hotels Ltd. Receipt 2,00,000 16-7-2007 Dr. Cash Cash received from Saran Enterprises For Eqbal Inn and Hotels Ltd. Receipt 4,00,000 9-9-2007 Dr. Cash Cash from Saran Enterprises For Hotel Eqbal Inn and Hotels Receipt 3,00,000 28-9-2007 Dr. Cash Cash from Saran Enterprises For Hotel Eqbal Inn and Hotels Receipt 3,00,000 11-10-2007 Dr. Cash Cash from Saran Enterprises For Hotel Eqbal Inn and Hotels Receipt 2,00,000 31-3-2008 Cr. Share application money A/c Received from Kamalpreet Singh Director Journal 23,00,000  ....
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....p; 29,400 27-8-2004 Dr. Cash Cash received (from Jaimalson Ent. Pta) 1,50,000 9-9-2004 Dr. Cash Cash received (from Jaimalson Ent. Pta) 62,000 8-10-2004 Dr. Cash Cash received (from Jaimalson Ent. Pta) 58,000 3-1-2005 Dr. Cash Cash received 8,00,000 31-3-2005 Cr. Share application money-Pritam Kaur Journal 85,49.200 85,49,200 85,49,200 Balwinder Singh Ledger account -1st April, 2006 to 31st March, 2007 Date Particulars Vch Type Vch No. Debit Credit 9-10-2006 Dr. Cash Cash received from M.P. Traders For Eqbal Inn and Hotels Receipt 4,00,000 31-3-2007 Cr. Share application money A/c Received from Balwinder Singh - Director Journal 4,00,000 ....
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....ey Cash received From Balwinder Singh Director Journal 49,00,000 49,00,000 49,00,000 21. First of all reading of the account of Shri K.M. Sethi who is a director clearly shows that money has not come only through cash but through cheques also on various dates. Money has been credited to the current accounts. The same findings have been given by the Jt. CIT at para 3.3., which reads as under:- "3.3 The perusal of account of Eqbal Inn and Hotels Ltd., Patiala in the books of Saran Enterprises reveal that it paid cash for Eqbal Inn and Hotels without specifying the nature of these payments. In the books of Eqbal Inn and Hotels Ltd., there is frequent receipt of cash by the assessee in the current accounts of Shri Kamalpreet Singh, Smt. Pritam Kaur and Shri Balwinder Singh Sethi and at the end of the financial year, the entire sum has been shown as share application money which is quite inconsistent with the established accounting standards/principles. The assessee failed to produce any documentary evidence regarding share application money account. In other words,....
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....nners (P) Ltd. (supra). Definitely, Hon'ble Jharkhand High Court in the case of Bhalotia Engineering Works (supra) has taken a different view. Here though the contention of the learned counsel for the assessee was that a view favourable to the assessee particularly in the case of penalty provisions should be adopted as per the decision of Hon'ble Supreme Court in the case of CIT vs. Vegetable Products Ltd. (supra). But in our opinion this does not require further discussion because Hon'ble Punjab and Haryana High Court itself in the case of Speedways Rubber (P) Ltd. (supra) has taken the similar view. In that case the assessee had received share application money of Rs. 20,000 in cash. The penalty was levied under s. 271D of the Act. The penalty was deleted by CIT(A) which was upheld by the Tribunal. The Hon'ble High Court distinguished the decision of Hon'ble Jharkhand High Court in the case of Bhalotia Engineering Works (supra) and held that transaction was bona fide and default was of technical nature which did not justify the levy of penalty. 23. The Jt. CIT has given one more finding that share application money along with paid-up capital has exceeded th....
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....bsp; "Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless:- (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the AO aforesaid has been found to be satisfactory." The above clearly shows that need of justification of premium etc. came in the statute only from asst. yr. 2013-14 onwards. It was also alleged by the Jt. CIT that share capital was issued only after five years which is also not fully correct. The perusal of the share application account would show that share capital has been first issued in financial year 2002-03 amounting to Rs. 4,93,000. Further, share capital amounting to Rs. 1,64,20,000 was allotted in....